Start Smart Investing Through Systematic Investment Plan (SIP)
Written on Friday, November 3, 2017
By Mitali Sharma
An early beginning in all walks of life is a good recipe for success. The same holds true when it comes to investing one’s savings for meeting the financial goals. An early start allows one to remain invested for long and thus they succeed in getting maximum benefit out of investments. However, to get the best investment returns, the success recipe is not just to Start Young but also to Start Smart. Understandably, among youths investing is not on the top of their minds. There can be many reasons for it such as less investment knowledge, lack of awareness on where to invest when to invest or deficiency of enough fund to carry out investing.
For young investors, SIP is a smart investment because it doesn't require lumpsum investment, one can start with as less as Rs. 500 or Rs. 1000. Also, it doesn't require timing the market. Continue reading to know more about how Systematic Investment Plan (SIP) is a smart investment choice.
High Potential for Returns
Equity markets are synonymous with volatility and unexpected state of events may lead to unpredictability in returns. An ideal way to profit from it is to buy at the bottom and sell at highs. But that’s easier said than done. Much as it is futile to try and time the market, there is a scientific way to keep your purchase price down without having to second-guess the market.
Following a process termed as Systematic Investment Plan (SIP), you could increase the potential of your money to generate higher returns from the equity asset class than otherwise. Even new investors can make use of SIP. All it takes for you to follow SIP is to invest regularly, for long periods of time. SIPs are regular investment plans available on all kinds of mutual fund schemes, though they are the most effective in equity schemes, as equity is a more volatile asset class than debt. SIPs help you profit from volatility by automatically buying you more units when prices are falling and fewer units when prices are rising, thus lowering your average purchase price, while inculcating some much-needed discipline into your investing habits.
Benefit When Market is Low
Usually, you invest in a scheme at its prevailing net asset value (NAV). Under SIPs, however, your investment in the scheme is staggered. Instead of a lump sum, you invest a pre-specified amount in a scheme at pre-specified intervals (monthly or quarterly). The number of units you get on each investment is based on the scheme’s then-prevailing NAV. A SIP enables you to use a fall in your scheme’s NAV to your advantage. When its NAV falls because of a fall in the market, you will accumulate more units at lower rates.
Further, a SIP restrains you from going overboard in a rising market, by giving you fewer units at those higher levels. Over long periods of time, at least a market cycle, this disciplined approach to investing tends to bring down your average unit price. At most times, your average unit cost will always be below your average sale price per unit, irrespective of whether the market is rising or falling. Only in extremely bearish phases, will a SIP investor show a loss. They are most effective over long periods of time. Further, by staying invested for a long period of time, you profit from the appreciation equities tends to show over the long term.
If you are looking forward to investing in equities but hesitating owing to reasons like not handy with lump sum money or don't know when to enter and exit the market, then the one solution to all these challenges is Systematic Investment Plan (SIP). Through SIP you can make an investment of amount as small as Rs. 500 per month, it will make you systematic towards the habit of investing regularly, so no need for market timing. Also, on investing in open-ended funds, you will have the flexibility to withdraw your money at any point of time. In short, SIP is an easy and simple route, you don't need to be an expert to start your investments